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Before Boyd Gaming Corp.’s Q2 Results: What To Look For

With poor first-quarter earnings and a dim outlook for its U.S. operations next year, it's hard to make much of a case for buying Boyd. There is only one thing in this second quarter earnings release that would grab my attention.

Though locally known and loved, casinos like this struggle as Americans are less willing to part with their hard earned income following the financial crisis of 2008. Photo: Boyd Gaming Corp

All over the U.S., gaming revenue still continues to struggle to reach a healthy position following the 2008 financial crisis. For a company like Boyd Gaming Corp. (NYSE:BYD) with all of its casino operations in the U.S., this is a significant trend that has been killing the company's chance at profits.

The locations of Boyd Gaming's casinos around the U.S. Photo: Boyd Gaming Corp.

Competitors like Las Vegas Sands (NYSE:LVS) and MGM Resorts (NYSE:MGM) have had tough times recently in the U.S. as well; however, these companies reported incredible overall revenues in the first quarter thanks to their greater global diversification. With Boyd Gaming Corp.'s second quarter results being presented July 29, there is still one thing that could make this an interesting bet.

Following a tough first quarterThe company reported first-quarter revenue down nearly 4% year-over-year and EBITDA down over 11.6% for the same time. While the company has reported rising total year-end revenue for the past three years straight, the company can not seem to stop the net income losses. Boyd's first-quarter results didn't help the cause, and even though weather was attributed to much of that harsh quarter, Q2 likely won't be much better.

Photo: Wikimedia; Editing: Bradley Seth McNew

The main reason, which affects all of the major U.S. casino companies, is that the U.S. gaming economy itself is still struggling to regain its 2007 peak. Las Vegas Sands and MGM Resorts also posted pretty lackluster results for their U.S. operations; Las Vegas Sands posted a 7% decline in first-quarter revenue for its Las Vegas operations year-over-year.

Yet, the companies both reported incredibly profitable quarters with record-setting global revenues. The difference: Asian revenue growth. Macau operations still helped Las Vegas Sands and MGM to grow revenues in Q1 at unprecedented rates, and Boyd had no international properties to gain on this growth. However, the Las Vegas economy does show signs of a rebound, so should you look to Boyd for this trend?

Boyd Gaming Corp. v. MGM Resorts for the Vegas comebackLas Vegas Sands posted Q2 results missing analyst expectations due to lowered VIP growth in Macau. For MGM Resorts, lowered VIP revenues in Macau might not be such an issue. MGM gets 37% of its revenue from Macau, but the rest of its revenue comes from Las Vegas and the U.S. Northwest.

Jim Cramer of CNBC's Mad Money likes MGM Resorts. He noted that "It gets 50 percent of its business from Vegas, and right now that may be a positive, as the US is rebounding while I think China could remain volatile for some time." MGM Resorts' ability to gain significantly on the Las Vegas comeback, but still getting some Macau growth, puts it ahead of Boyd Gaming Corp. right now.

Boyd Gaming Corp. v. Las Vegas Sands following Sands' Q2 missLas Vegas Sands posted incredible first-quarter results with total company revenues up 21.4% and nearly 10%, respectively. However, the company's second quarter expectations of 90 cents a share were missed with Sands release of 85 cents a share, from a total revenue of $3.62 billion. The stock is down slightly following the release.

But don't be fooled (small 'f'). Sands still posted 12% revenue growth for the quarter, well ahead of what we can expect from Boyd Gaming Corp. this quarter. Therefore, even with Sands Q2 miss, its revenue growth, and especially income growth, will still far outpace that of Boyd Gaming Corp.

Photo: Las Vegas Sands; Chart: Yahoo! Finance

The one thing that could interest me from Boyd: Online gambling growthThere doesn't seem to be much worth investing in at Boyd Gaming Corp. However, investors should not overlook one potential highlight in Boyd's earning throughout this year. Boyd is the only large-scale physical gaming company that is also successfully building its online gambling presence.

Photo: The Borgata

The company's New Jersey casino, The Borgata, is now much more than just a physical casino. The company has been busy building its online presence and now offers live online gambling to New Jersey residents. Along with its partnership with PartyPoker, Boyd Gaming Corp. is by far the market leader in online gambling in the state.

The revenue from online gaming has started pretty small, and hasn't done much for the company's bottom line in Q1 because of its costs of launching these operations. Yet, if the online gambling segment can continue to do well with lowered front-end costs, then it could become a cash generator for the company in the future.

New Jersey is a special case in which the local government has been lenient on online gambling, as not all states allow such operations, but the trend is that more and more states are legalizing and supporting them. If the company can foster the right relationships, it could replicate its operations in New Jerseyin other parts of the country, potentially creating a solid revenue line. Seeing this trend continuing to develop very positively for Boyd in Q2 could show potential for what could someday be a great business.

Foolish Conclusion: Watching Boyd's earnings, but still betting on othersFollowing such a poor first quarter earnings release, there is not much to be excited about in Boyd Gaming Corp.'s second quarter earnings. The company has been able to increase total revenues in 2013, and investors should definitely assure this trend continues, but unless the company is getting closer to passing those revenues into positive net income, the company still doesn't provide much hope for investors. Furthermore, there is much more reason to be bullish on Las Vegas sands and MGM Resorts right now.

However, the online gambling growth that could come from Boyd's recent push into online gaming in New Jersey might be enough to make this stock interesting. For this company's Q2 earnings, I will be watching to see if the company can show a solid gain in online gambling revenue, enough so that the future of its earnings look much better than they do now.